Starbucks – Going Global Fast

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Table of Contents

Abstract
Introduction
Starbucks global expansion: Controllables
Starbucks global expansion: Relevant uncontrollable elements
Major sources of risks facing Starbucks in its international markets
Critique Starbucks overall corporate strategy
How Starbucks can improve profitability in Japan
Conclusion
Reference List

Abstract

Starbucks, like other companies, has continued to expand its global operations for enhanced business sustainability. As a matter of fact, the company is going global by entering new markets. On the other hand, there are various risks that the company is facing in international markets. Therefore, Starbucks has been forced to deal with various elements in entering global markets to enhance its operations.

Introduction

Starbucks prides itself as the largest coffeehouse company around the globe. It was started in Seattle as a coffee bean roaster and retailer (Starbucks, 2010, p. 8). From thereon, the company has been expanding as time goes by to reach new markets.

Wholesomely, the company has more than 17,800 stores in 49 different countries (Starbucks, 2010, p. 12). Most of these stores are based in the United States of America. In addition, it has a large range of products to suit different market needs and tastes.

In a broad perspective, most of its products are seasonal. This means that they are specific to a given locality that the company operates a store. Starbucks has always had good growth plans and in 2009 it had projected to open 900 stores outside the United States to enhance its global operations (Starbucks, 2010, p. 6).

Starbucks global expansion: Controllables

It should be known that the company has dealt with relevant controllable elements in entering global markets. The company has had a big challenge of maintaining its own growth (Starbucks, 2010, p. 21). As a matter of fact, it does not have any debt and has been financing its expansion programs without any problem.

The company has also been forced to maintain a tight grip on its own image. To deal with this issue, it has ensured that most of its stores are company owned. This implies that there will be no franchises to slow down its operations in different perspectives.

Price is another controllable element that the company has had to contend with. For instance, Italian bars have prospered by offering customers various quisines. Starbucks has controlled its advertising and therefore saved a bundle on its marketing costs (Pendergrast, 2001, p. 8).

As a matter of fact, it only spends 1% of its revenues on advertising and this is very effective and efficient. Most of this is incurred on new product launches and new flavor drinks. When compared with other companies that spend more than $ 300 million on advertising, the company spends $30 million (Pendergrast, 2001, p. 13).

Management expansion tactics have been kept within the reach of the company’s resources in expanding to new markets (Starbucks, 2010, p. 24).

This has made it possible for the company to design and open a new store in less than 16 weeks. In addition, it has also been able to recoup its investments in less than three years. Innovation is another controllable element that the company has continually used to its advantage (Pendergrast, 2001, p. 32).

In this case, the company has been highly innovative as far as its beverages are concerned. This can be explained from the fact that it has installed automatic espresso machines in more than 800 locations in a bid to improve service delivery in new markets (Bryant, 2009, p. 11). Some years back, the company began offering prepaid cards. This has improved its activities in new international markets.

Technology has been embraced at an internal level in the company’s global expansion strategy (Pendergrast, 2001, p. 12). In this case, Web technology has been included in its systems to increase service delivery. This means that customers can preorder and pre-pay for various pastries and beverages.

Starbucks global expansion: Relevant uncontrollable elements

The company has had to cope with the unpredictable challenge of being refereed to as a mature company (Starbucks, 2010, p. 6). This has been witnessed in the US but has spread to other foreign markets. In this case, the company will continually face a hostile reception from different future consumers.

The company can not control the number of the youthful population in different markets. This means that it has to continually re-invent itself for enhanced sustainability. It has been extensively involved in market research to know the needs of different market segments (Bryant, 2009, p. 431).

As the company spreads out, it has faced different cultural challenges in distinct markets. It should be known that countries have diverse cultural backgrounds. Culture defines the tastes and preferences of different consumers.

Therefore, the company has been forced to understand different cultural aspects to strengthen its presence (Bryant, 2009, p. 65). It is quite obvious that a given commodity might not do well in new international markets. In this case, Starbucks has continually enhanced its product line to suit new market needs and preferences.

There is no company that can control the pace of technological advancements. Technology has continued to spread very fast as time goes by (Pendergrast, 2001, p. 32). For enhanced operations, the company should keep pace with various advancements for an improvement in its operations.

To remain relevant, Starbucks has always embraced technology and incorporated it in its operations in relation to the demands of a given new market. Such advancements have been seen in the development of a prepaid card for customers (David, 2007, p. 7).

Competition has been increasing in different markets like Japan. This competition has been intensified as customers demand new experiences. Therefore, the company should cope up with competition as it is not in any capacity to control it. For example, it has consistently developed a broad new menu in Japan to remain competitive. This has seen it increase its stores to 700 (David, 2007, p. 13).

To keep off competition, it has also developed seasonal products to suit the needs of the market at that particular time (Bryant, 2009, p. 25). Starbucks has also had to contend with various political and legal bindings. An example is France’s arcane regulations and labor benefits.

Major sources of risks facing Starbucks in its international markets

One of the major risks that the company has faced is a saturated market. Though this has been witnessed in domestic markets like US and Canada, its effects have been felt in new and international markets. As much as it has more than 17,800 stores in 49 different countries, the company considers this as an upper limit of coffee shop saturation (Starbucks, 2010, p. 15).

For instance, saturation has also been witnessed in Japan where the effect of new shops has slowly worn off. To curb this threat, the company has continually renovated its stores and improved its services to remain strategic in the market (Bryant, 2009, p. 35).

Another source of risk is loosing customers. This is because the company offers very few options to different consumers. As a mater of fact, it has been importing its flagship products to new markets. As much as markets may be related, the company needs to develop products based on different tastes and preferences. This will protect it from losing customers who want new experiences (Bryant, 2009, p. 63).

The Generation X does not feel comfortable with Starbucks stores and this is a very big source of business risk in international markets. In this case, the company might end up facing a very hostile reception from its future customers.

As a matter of fact, they will be turned away by the power and image of the company’s well known brand. To solve this problem, the company should continually redesign its brand to make it more appealing to the youthful market (Michelli, 2006, p. 17).

Global expansion poses a big risk to the company’s international markets. This is because it makes less money from its overseas ventures. Such overseas ventures are operated in partnership with local businesses. In this case, the company should focus on a good strategic alliance that will increase its profitability.

For instance, it can embrace alliances in the acquisition of properties instead of partnerships (Michelli, 2006, p. 19). Great obstacles will also be seen in SRC and Ethnocentrism with local partners.

To solve this, the company can keep away SRC and Ethnocentrism from its decision making. There is another risk of employee disruption. In this case, there is a perception that most of the company’s employees are dissatisfied with their pay. Starbucks should therefore focus on new ways of reducing employee disruption to enhance service delivery in its stores (Michelli, 2006, p. 39).

Critique Starbucks overall corporate strategy

The company has been making various loses because of an apparent mismatch between its customer expectations and corporate strategy. Although the company dominates the USA market, there are other states that don’t have a single Starbuck store (Starbucks, 2010, p. 25). This means that it has not paid attention to the whole market. The company believes that it can make many sales by increasing its stores every now and then.

By increasing its stores in domestic and international markets day by day, the company has forgotten to focus on its key mission of satisfying customer needs (Warner, 2004, p. 11). It should be known that the company can design and develop a new store in less than 16 weeks.

Starbucks has continually focused on the older generation thereby forgetting the Generation X (Bryant, 2009, p. 75). In this case, it does not have a differential pricing for the youthful market. For instance, some of them find it absurd to pay $3 for a cup of coffee.

The company has relied on franchising to expand its business outside United States and this undermines its strength in key domestic markets (USA and Canada). It is undeniable that the company is going global but its spending has not been matching its market status (Warner, 2004, p. 14).

Starbucks only spends 1% of its revenues on advertising unlike other major companies that spend 10% of their revenues. This poor spending ultimately negates its brand building initiatives outside USA (Bryant, 2009, p. 67).

Starbucks has in one way or the other created barriers to entry for other competitors through its somehow predatory real estate strategy (David, 2007, p. 18). This is not good in a free and competitive market and may attract a lot of dissents from customers and the community.

The company’ does not pay its workers well in relation to their workload. This has created a lot of dissatisfaction among employees. Apart from this, Schultz, the company’s chairman, has been making scathing comments that might affect its business in Muslim dominated regions (Michelli, 2006, p. 41).

How Starbucks can improve profitability in Japan

The company can still improve its profits in Japan by repositioning its products and services. As a matter of fact, Japanese customers are less conscious about prices. More attention should be focused on the youthful generation as they have good growth prospects. Because there are many competitors in Japan, the company can either increase benefits or reduce prices to keep off intensified competition.

Japanese people are very busy and might not find enough time to visit Starbuck stores. In this case, it can introduce the US online system where customers will give their orders through the internet (Starbucks, 2010, p. 32).

In addition, it can also come up with an effective entertainment or cultural campaign to entice various Japanese youths. This will likely attract youths to the company’s stores. Extra activities can also be added to its existing product line to suit different market tastes. In this case, the company will be able to increase its profitability in Japan (Bryant, 2009, p. 31).

Conclusion

Starbucks has been increasing its global activities to expand its market beyond USA and Canada. This has seen the company establish its presence in more than 49 countries. Therefore, it has had to cope with the unpredictable and predictable elements in entering these markets. As much as it has more than 17,800 stores in 49 different countries, the company considers this as an upper limit of coffee shop saturation.

The company has faced various criticisms because of its overall corporate strategy. This should be effectively taken care of for enhanced sustainability. For instance, the company believes that it can make more sales by increasing its stores every now and then. Despite all these problems, the company can still remain profitable in its key markets like Japan by embracing good growth strategies.

Reference List

Bryant, S. (2009). Everything but the Coffee: Learning about America from Starbucks. California: University of California Press.

David, R. (2007). Struck By Starbucks. New York: Forbes.

Michelli, J. A. (2006). The Starbucks experience: 5 principles for turning ordinary into extraordinary. New York: McGraw-Hill.

Pendergrast, M. (2001). Uncommon Grounds: The History of Coffee and How It Transformed Our World. London: Texere.

Starbucks. (2010). For business. Web.

Starbucks. (2010). Starbucks coffee Japan. Web.

Warner, M. (2004). Cup of Coffee, Grain of Salt. New York: New York Times.

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